Intel Corp (INTC)

[SemiconEng]

Intel: Friend or foe?


Although AMD has painted Intel as a bully, execs who've dealt with company draw a more ambiguous picture.

http://news.zdnet.com/2100-9584_22-5851249.html
Aggressive dealing is nothing new in the technology industry, but the Epson experience illustrates how Intel has elevated the practice to an art form. Unlike other companies known for clumsier tactics, industry veterans say the leading chipmaker has risen to the top of its business at least in part by making deals through a combination of incentives, assistance and hard-nosed negotiating.

Steve Tobak, a principal at Invisor Consulting who used to compete against Intel in the late 1990s while at Cyrix, describes Intel's business practices this way: "The stick is implied. They do it in a way that won't stick in court. But they also have a carrot. And it's a powerful and many-faceted carrot."

Those facets can include such tangible commodities as preferential chip allocation, marketing dollars and introductions to big customers--which can all easily translate into millions of dollars.

Hardware makers that take technological assistance from Intel, such as blueprints or royalty-free reference designs, are often predetermining their eventual adoption of its chips. But these plans also let them cut engineering budgets and the time required to come to market.

By contrast, the competition has never been quite as organized. Several years ago, sources say, Cyrix, AMD, Compaq Computer and IBM formed something called "The Sundance Consortium" to develop and promote a non-Intel PC platform and held secret meetings in Chicago. Disagreements ensued, and the coalition eventually fell apart.

Manipulation can also go both ways. A former Cyrix executive once said Ben Rosen, the longtime chairman of Compaq, used to call him every few months and ask him to sit in the lobby. The reason: Intel sales representatives were coming to visit, and Rosen wanted to make sure that they saw one of their competitors on site. In return, Compaq adopted Cyrix for a few computers.

"When you're in the process of putting together your PC lineup, you negotiate up until the last moment," one former high-ranking computer executive said. "It's not like no one pretends there isn't competition out there."

Reasons such as this make it difficult to prove long-standing patterns of unfair practices in many businesses. A central charge of AMD's lawsuit is that Intel uses a war chest of marketing dollars and rebates to edge out the competitor. But these kinds of incentives are used throughout the electronics industry--even by AMD.

Complicating AMD's claims further is the fact that computer makers and retailers love these funds. Intel generally offers four types of financial aid: volume discounts; Intel Inside funds for advertising; market development funds for promoting specific products, such as Centrino; and rebates, which, like volume discounts, are related to sales. Without these incentives, making money on PCs would be a harder proposition for many.

Unlike executives at Microsoft, whose trial proceedings sometimes had the feel of cathartic therapy for angry PC manufacturers, Intel's dealmakers "are more likeable in their approach," according to once source who worked with both companies.

Even some of Intel's adversaries refer to the company's sales representatives with a good-natured acronym--"FIGs," for fill-in-the-blank Intel guys.

Others, however, remain bitter even after obtaining multimillion-dollar settlements from the company.

Despite repeated denials by Intel, former Intergraph CEO Jim Meadlock insists that the chipmaker withheld technical information and products in trying to force his company to sign a patent cross-license.

"They destroyed our hardware business. We were on Windows NT and, at the time, there was no alternative," he said in a recent interview. "They put tremendous pressure on you. It was tough to get someone to testify against them."